Washington

The Federal Reserve plans to scrutinize the nation's top 19 banks for a second time, the latest indication federal regulators are seeking to toughen oversight of the nation's biggest financial institutions.

Government officials said the new capital reviews weren't triggered by any particular concern but are instead part of the Fed's efforts to step up bank supervision in the wake of the crisis. The central bank said it plans to perform such reviews "on a regular basis" as part of its "efforts to enhance supervision of banking organizations." The Fed, along with other banking and regulatory agencies, has been faulted for failing to detect problems at large financial firms and not doing enough to curb risk-taking on Wall Street.

Earlier Graphic: Stress Test Results

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Compare the 19 banks that were tested in 2009.

The sweeping financial-regulatory overhaul passed by Congress this summer enacted a host of new requirements, including rules to curb risk-taking. Banking regulators have also toughened oversight in the wake of the crisis, including tightening lending standards for banks that make commercial and consumer loans.

In 2009, U.S. regulators tested the resilience of the same 19 companies. Regulators made the first round public in large part to help assuage investor fears about the extent of losses at the nation's largest financial firms. The tests, which showed banks faced a total of $599 billion in losses over two years, directed 10 banks to add altogether nearly $75 billion to their capital buffers. They are widely credited with helping restore confidence to the financial sector and pulling the U.S. from the brink.

This time, bankers said another round won't be as taxing given that many of them already perform such tests on themselves and have taken steps to improve their health. Banks with large credit-card operations have taken steps to curb lending. American Express Co., for example, had about $57 billion in outstanding loans in the third quarter, down from about $72 billion in late 2008. J.P. Morgan Chase & Co. has reduced its card portfolio by about 15% in the past year or so.

In addition, the results of the new capital reviews won't be made public.

The Fed on Wednesday also issued a road map for banks that want to raise dividends or buy back stock, with regulators saying firms must show they have capital cushions in place to withstand losses over the next two years and demonstrate an ability to satisfy new, tougher global capital requirements.

The Fed's two moves—on dividends and the capital tests—will serve as another demarcation point between the healthy and the weak among big U.S. banks. J.P. Morgan, Wells Fargo & Co., PNC Financial Services Group and U.S. Bancorp are expected to be among the first to be allowed to raise dividends. Bank of America Corp. and Citigroup Inc., on the other hand, could face more hurdles.

Bank stocks dropped Wednesday on the news. Bank of America declined to comment. Citigroup had no immediate comment.

The tougher regulatory environment has triggered concern at some financial firms, in particular smaller banks, who complain examiners are making it harder for them to provide credit at a critical moment in the economic recovery.

Eugene Ludwig, a former U.S. comptroller of the currency, said the Fed's decision to impose another round of stress tests is a "natural extension of what they rightly see as having been a successful program. There's no doubt that there's been international focus, including Federal Reserve focus, on the importance of these capital cushions as a key element in financial institution safety."

Concerns about the health of most large institutions have decreased, though investors remain nervous about the extent of losses banks face if they are required to repurchase flawed mortgages and mortgage-related investments. As part of its review, the Fed will require banks to assess their exposure to so-called "put-backs" of mortgages.

The capital assessments are a precondition for banks that want to raise dividends or buy back stock. Many U.S. banks have been clamoring to boost payments to shareholders, citing improved profits, because they have long relied on a steady stream of dividends to lure investors. Federal regulators had balked at allowing banks to divert capital for such purposes, insisting they wait until global regulators hashed out new capital rules. With those rules largely in place, the Fed said it is prepared to begin giving the green light to banks in the first quarter of 2011.

U.S. Bancorp Chief Executive Richard Davis said he expects the Fed to allow a group of banks to repay at once. "I want to be among the first," he said. "It's very important to me."

A spokeswoman for Ally Financial Inc. said the bank has been conducting its own internal stress testing in addition to the Federal Reserve's tests and said, "we are prepared to fully comply with their requests."

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